Another new year comes around and, with tedious inevitably, the social enterprise definition debate rears its many heads. The trigger for the latest exchanges is the fact that, shortly before the Christmas break, the Health Secretary, Jeremy Hunt, fulfilled his duty under the Health and Social Care Act 2012 and came up with a definition for social enterprise.

I’m not going to add to growing worries about unnecessary replication in civil society provision by attempting my own dissection of the definition itself but it is worth looking a bit more closely at the implications of its existence (for the social enterprise movement, in particular). Leslie Huckfield believes that: “Following precedent, there is now every possibility that this definition will be replicated in Regulations under other legislation.”

The point being that now a cabinet minister has defined social enterprise – as part of a new law – this definition will become the definition used by government. Civil Society spoke to two social enterprise leaders, Lucy Findlay, managing director of the Social Enterprise Mark Company, and Ceri Jones, head of policy at Social Enterprise UK, and got two slightly different perspectives. Findlay’s comments focused on the issue of whether the definition would allow private companies to run HealthWatch organisations (and apparently, by extension, other health services): “This allows for ‘sham’ social enterprises – being used as a front for potential bidding for health contracts and will further blur the lines with regards to the privatisation of the NHS.”

Jones, on the other hand, offered her response answer to the question of whether the new definition sets a precedent: “This is simply the Department for Health defining the structure of Healthwatch bodies,“. She expands on this point in an article on the Third Sector website saying: “But this won’t set a precedent… I don’t think that as we see more commissioning from social enterprise we will see government try to define more closely what it is.”

It seems, for all the excitement around this announcement, that it’s actually just business for the government in terms of its attitude to defining social enterprise. The approach has been and will continue to be that any government department that feels it needs to use the term social enterprise in legislation or to define recipients of its funding programmes is left to come up with its own social enterprise definition on ad hoc basis.

Government departments clearly do have to take decisions about which types of organisations are eligible to deliver contracts (and/or receive funding) based on a range of factors but it’s not clear why this means they have to continually use social enterprise as an elasticated catch-all term. There are plenty of other catch-all terms they could use without damaging a social movement in the process.

Pioneers Post’s Matt Black posed his characteristically insightful 5 tough questions for UK social enterprise in 2013 this week and question 4 asks ‘Can brand ‘Social Enterprise’ keep clean?’ adding: “One area of growth in the social enterprise marketplace will come from CICs, mutuals and other employee-owned, public service spin-outs… Some of these organisations are thriving but in the public eye will they simply be perceived as privatisation?.. Will the public feel the same way, or can they be convinced that social enterprise is a genuine alternative to business as usual?”

This is a big danger for the social enterprise movement. It’s particularly unhelpful for social enterprises looking to sell products and services to the public in consumers markets if there’s headline in the local paper saying: “Health contract goes to ‘Social Enterprise’ owned by hedge fund”.

There’s no logical reason why the description given to groups that the Health Secretary deems eligible to run HealthWatch needs to be ‘a social enterprise’. It could just as usefully be ‘Civil Society Organisation’ or ‘Community Organisation’. Many private companies and all charities relying primarily on grants and donations (other than the HealthWatch contract) will be eligible under the regulations.

While it’s Andrew Lansley’s fault – not the fault of Social Enterprise UK, or anyone else in the movement who’s been involved in making the best of a bad situation by helping to put together these regulations – the only thing social enterprise gets out of this is the blame.

I’m not in favour of some kind of once and for all definition of social enterprise or ‘a social enterprise’. I don’t think it’s either possible to achieve or desirable. What is possible and desirable, though, is for the government to choose a definition of social enterprise that it applies consistently across departments, so that organisations and commissioners can be clear what it means when government uses the term.

Matt Black’s tough Question 5 is ‘Will the definition debate be settled once and for all?’ and his answer is ‘nope’. He’s right but the government can settle its own position and, if it does so, it can help make it easier for social enterprises to engage with the public sector and represent themselves to the wider public.

17 responses to “Happy New Year, no major developments in definition debate”

I thought I’d get in first before someone draws parallels with the Ukraine. ;-)

I’m shocked that Ceri thinks this won’t cause a precedent. On what basis does she make such a claim? I know for a fact that she’s not a stupid lady but this naivety seems more based upon wishful thinking than anything else. But we shall see. I’m more inclined to be cynical like my partner in crime/honorouble friend Mr Huckfield. But perhaps Ceri Jones and Peter Holbrook habe been given an inside track that the current government are about to do a complete volte face and decide that stretching the concept beyond all usefulness to suit their nefarious ends is a bad thing after all. But then, the government and pursuing their own agenda, which is frankly not the same as the movement slash sector slash phenomenon’s. You catch my drift. Nice blog David, thanks.

As I read it, several commentators have misinterpreted the statement below to take that it means that 50% of profit is held by the company with the remainder distributed as dividend.:

“The constitution of the body must state, or contain provisions which ensure, that not less than 50 per cent of its distributable profits in each financial year will be used or applied for the purpose of the activities of that body;”

To me, it seems more congruent with what was put to Bill Clinton, where at least 50% is invested in the local community with no share distribution, i.e.

“The only difference is this: that at least fifty percent of profits go to stimulate a given local economy, instead of going to private hands. In effect, the business would operate in much the same manner as a charitable, non-profit organization whose proceeds go to local, national, and international charities.”

That’s the model introduced to the UK in 2004 with a business plan, saying:

“Traditional capitalism is an insufficient economic model allowing monetary outcomes as the bottom line with little regard to social needs. Bottom line must be taken one step further by at least some companies, past profit, to people. How profits are used is equally as important as creation of profits. Where profits can be brought to bear by willing individuals and companies to social benefit, so much the better. Moreover, this activity must be recognized and supported at government policy level as a badly needed, essential, and entirely legitimate enterprise activity.”

If I’m right, then government policy really does seems to have fallen into line :-)

This BTW was the model introduced to SEL, SEC and RISE_SW who all said they couldn’t offer any support – in spite of their public funding. .

As I’ve mentioned in previous comments, we’ve already seen sham social enterprise manifest as CICs in Gloucestershire. One came close to being a fraud case involving local government funds.

I would have joined in the conversation with Pioneers Post, but for their going Rupert Murdoch on us and wanting 250 quid just to post a comment. Quite a contrast with our own policy of sharing knowledge.

Our social enterprise model for example, free to use, even by those desperate to ignore us,

Thanks for the comment, Michael. As I understand it, Ceri is saying that the new definition – for HealthWatch contractors – won’t set a precedent for the way social enterprise is defined, either by other departments or by the Department of Health for other purposes.

It seems fairly similar to what you’re saying in terms of what will happen in practice but minus the suggestions that the government has nefarious ends or that using different definitions for social enterprise necessarily means they aren’t useful.

As suggested above, I don’t think these multiple definitions are useful to social enterprises or the social enterprise movement. I’m not sure that this specific one is even particularly useful to the government.

Id we take the two statements below it adds up to a business investing at least 50% of surplus revenue for community benefit:

“(a) state, or contain provisions which ensure, that not less than 50 per cent of its distributable profits in each financial year will be used or applied for the purpose of the activities of that body;”

“(b)contain a statement or condition that the body is carrying on its activities for the benefit of the community in England”

To me, that’s entirely congruent with what was set out in the 2002 DTI document Social Enterprise – A Strategy for Success and what the DTI confirmed to me in 2004.

IMore than most, I have the right to say whether that’s a sham or not because that was how we operated from 2004, while we still made a profit It’s more than a little ironic to hear the suggestion of “sham” coming from those in receipt of public funds who are ‘too busy’ to support practitioners.

Following this, it’s rather ingenuous to suggest that any other Government Department will now seek to define “Social Enterprise” in a different way. That’s not the way that Cabinet Government and Cabinet Committees work.

David. Thanks for this. While I’m not suggesting that other Government Departments will now automatically follow this definition, in future, wherever ‘Social Enterprise’ is defined in detail, the Healthwatch definition will be their yardstick.

If they don’t follow this definition, then the usual crowd of private sector lobbyists will point out that this definition allows them easier access in the Department of Health Regulations than elsewhere.

I’ll explain the reasoning behind our position having been involved in the process.

It starts with the last secretary of state for health, who initially wanted to contract out Healthwatch to all types of provider. But in response to criticism from local Links (the predecessors of Healthwatch), namely that this could result in Serco running their services, he made a concession that Healthwatch organisations would take the form of social enterprises.

This presented the team at the Department of Health (DH) with a challenge:

1. They had to work out how they could integrate this statement into some form of regulation.
2. They had to operate within the parameters of the government’s only existing definition (Department of Trade and Industry (DTI) 2003) – good spot, Jeff.
3. They needed to bear in mind that we are in a free European market so stipulating a preferred organisational form when awarding contracts could face legal challenge.

The DH continues to use the definition that all social enterprise related policy uses. There’s been no change since the DTI defined social enterprise back in 2003. It’s also worth noting that it’s not the first time the DH has done this – see health and social care act 2008 where in order to establish the social enterprise investment fund the government department had to determine some legal parameters on the form that organisations needed to take in order to qualify – it’s this experience too that helps inform our view on this. If we believed this posed a threat to the social enterprise movement we would tell the DH, and we’ll continue to monitor this and speak out if we feel the need to.

As for the bigger issue of a widely agreed definition… if we’re to do that, it will be a far bigger process requiring collaboration with our European partners, the involvement of the Department of Business Innovation and Skills, the Cabinet Office and most importantly the social enterprise sector itself.

You make a couple of interesting statements that I thought I could ask you further about.

Firstly, you state that they had to operate within the parameters of the government’s only existing definition (the oft quoted definition at the Executive Summary on p7 of the 2002 strategy document). Now a lot of water has passed under the bridge since then. We have had a change of Government and the DTI is no more. So any idea why they felt they had to operate within the parameters of that definition? Particularly since a number of ministers, but most notably Andrew Lansley himself, has had no reason or inclination to follow the previous government’s definition in any previous public utterance. In fact you’ll recall that Peter Holbrook in the early days of the coalition pulled him up for stretching the term beyond any reasonable understanding. So (and I’m honestly curious here) why did the civil servants feel that they had to go back to the previous government’s rather woolly (but rather comfortable and well worn, like an old sweater) definition and not simply make it up as they went along like their Secretary of State was doing?

Under these new Regulations it appears now that any organisation, which doesn’t distribute more than 50% of profits, includes a statement of community benefit (presumably this will be like the CIC Community Interest Statement, but won’t actually have to be registered with any Regulator? And certainly not made explicit within the Memorandum and Articles of the Company?) and distribution of assets upon windup to a similarly vague organisation, can now call itself a ‘Social Enterprise’.

Is that not the case? Have we got this wrong?

Does anybody know how many companies (public or private) actually distribute more than 50% of their profits in dividends? I suspect the number is minute. There is a big difference between “distributed” and “distributable”. The latter word is used in the regulations. How would you define “distributable” in this instance? What’s to stop surpluses from being classified as distributable profits simply by paying out huge bonuses and/or salaries to directors or staff members? How come there is no mention of democratic governance?

Why is there no mention of Industrial and Provident Societies?

Quite a salient question I think is why a social enterprise AT ALL to deliver these activities? I was looking at the remit of these Healthwatch things and I have to say it doesn’t look like a recipe for a viable business at all, particularly if a new organisation was being set up to deliver these activities. One customer? At the beck and call of your political masters who also happen to be your primary paymasters? These organisations don’t sound too distant from the apparatus of government. Will they be truly independent?

You mention the SEIF. Now as you know oodles of cash was simply given away to organisations in the form of grants, despite what the original intention was. This does not create a viable, sustainable movement/sector, whatever (you use the phrases interchangeably, so so will I). It does create a dependency culture and one that requires additional handouts to stay in “business”. Is that in the best interests of the sector/movement? Really?

I only ask these questions because you were, as you say, involved in the discussions.

Some of these questions are rhetorical. Nobody knows (really) what’s going on in the minds of ministers and civil servants. Given the Con-Dem cuts and scorched earth policies, it’s quite difficult not to be cynical of their motivations. But some of my questions are very salient and legitimate and go to the heart of the discussion. If you could shed some light on what you can I think it would be really take the discussion forward.

You also briefly mention Europe. Good. I think we should all revisit the EMES definition of social enterprise which predates the DTI one by a year or two (and would be an excellent model of social enterprise for SEUK itself to adopt and promote) But, of course, the Social Business Initiative has decided not to follow the EMES definition for some reason, instead coming up with their own brand of wooliness. But that said, they are proposing to introduce democratic governance principles into their proposed definition:

European Union: Proposed Definition (2011)

Article 2
Definitions

For the purpose of this Regulation:
(a) ‘Social enterprise’ means an enterprise whose primary objective is to achieve social impact rather than generate profit for owners and stakeholders. It operates in the market through the production of goods and services in an entrepreneurial and innovative way, and uses surpluses mainly to achieve social goals. It is managed in an accountable and transparent way, in particular by involving workers, customers and stakeholders affected by its business activity.”

The more relevant point however, is what level of contrbution is made to the community, or as the government puts it – “applied for the purpose of the activities of that body”

So far, nobody has challenged the following assertion:

“If a corporation wants to donate to its local community, it can do so, be it one percent, five percent, fifty or even seventy percent. There is no one to protest or dictate otherwise, except a board of directors and stockholders. This is not a small consideration, since most boards and stockholders would object. But, if an a priori arrangement has been made with said stockholders and directors such that this direction of profits is entirely the point, then no objection can emerge. Indeed, the corporate charter can require that these monies be directed into community development funds, such as a permanent, irrevocable trust fund.”

Jeff, at the risk of sounding rude and ungrateful I was hoping that Social Enterprise UK would provide a view on the points I raise. Rather than being a “more relevant point” I actually don’t think it’s very relevant or helpful at all to start throwing Corporate Social Responsibility (or, perhaps, social enterprise as a verb) into the mix with social enterprise (noun). The waters are murky enough. This is a highly complex and contested area but that’s why we have SEUK: to provide the movement/sector with leadership and guidance. Those that would rather stick pins in their eyes than engage in the endless rearguard action otherwise known as the ‘definitional debate’ depend on SEUK (and other such bodies) to provide clarity because “concept stretching” to the extent we have seen (i.e. to the extent that the concept itself becomes meaningless) is in no-one’s interest except that of some very clever opportunists who thrive in such uncertainty. Remember that there are a whole load of investment bankers hoping to make a killing in this nascent market. Hopefully ball back in Ceri’s court. Thanks.

Glad to see you’re still at it. While it’s interesting to note that you still have patience to wait for Social Enterprise UK to clarify things, I’ve now tried to steer the whole discussion to my own site:

As usual, based on published sources and quotations, I’ve tried to show that from the intervention of Social Enterprise UK above, they just don’t seem to recognise the significance of the new Local Healthwatch Regulations’ in defining ‘Social Enterprise’.

This is not a matter of differentiating between colleagues and structures within the Third Sector. The overwhelming priority is surely to stop the private sector and corporates labelling themselves a ‘Social Enterprise’?

But since the SEUK criteria for their ‘Social Enterprise Badge’ tell us that it’s acceptable to distribute up to 50% of profits “to allow a return on investment when required”, who can blame some readers for wondering whose side SEUK is taking?

Thanks a lot to everyone for their comments on this. I think it’s important to make clear that this is government legislation and accompanying guidelines, so – while Ceri has outlined SEUK’s approach – it’s not her job to offer a full explanation of the intentions behind the legislation and/or its implications.

It’s for the DoH to fully explain what their legislation means and for the Cabinet Office to take a view on what it means for the definition of social enterprise across government.

This discussion has, sometimes indirectly, covered a lot of ground – including my overall fears that social enterprise will end up as the scapegoat for privatisation of public services. I’m aware of the possibility that I might be incorrectly projecting those wider concerns on to this bit of legislation. That – rather than these regulations themselves – is something I’ll explore further in the near future.

I’m going to have to disappoint Michael now, with news on the EU Social Business Initative (SBI) in an article for Civil Society. It describes the strategy of mapping social enterprise across Europe and collecting national statistics.

“This strategy doesn’t solve the fundamental problem at the core of SBI that surfaced again in the November meeting. That is the clash between the purists of non-profit who look for incremental benefits under a new tag and the innovators who see SBI as a third way between competitiveness and social inclusion policies.

The stumbling blocks are the usual ones: the role of private investments and their profitability, special protection from competition rules, privileged access to public funding, and aversion to using the transformational power of the web and new technologies for public engagement. ”

“They rebranded themselves as social innovators and entrepreneurs because these are the new tags to get the ears and funding of Brussels. The Commission ended up opening the floor to every stakeholder claiming a place at the table.”

The borrowed definition of social business was one of the things I’d challenged the EU about through my MEP Sir Graham Watson, who’d acknowledged the likeness with the concepts described in the paper offered to the EU Citizens Consulation in 2008 and raised my complaint of plagiarism with Commissioner Barnier..

Barnier’s response is to say that these concepts were the result of ‘high level’ discussions and that they weren’t aware of our work, which rather undermines the very point of a public consultation.

So now it seems those who brushed us aside could themselves be brushed aside by those who see the means to profit from social purpose rather than deploy profit to a social purpose.